This is the third update of the Central Bank of Barbados’ Financial Stability Report, produced in collaboration with the Financial Services Commission (FSC). The Central Bank and the FSC are jointly responsible for the continuous oversight of the financial system, the assessment of vulnerabilities, and the initiation of policies to increase the resilience of the system in the face of possible adverse events. The Central Bank’s Financial Stability Unit collaborates with the FSC’s staff to ensure that the assessment of risk exposures covers the activities of banks, insurance companies, non-bank financial institutions, credit unions, the activities of the Barbados Stock Exchange, and issues and redemptions of government securities. This report analyses a range of financial stability indicators for banks and other financial institutions, as well as the balance sheet and income and expenditure trends. For the banking system, financial forecasts are used to project expectations for capital adequacy and the quality of credit. Progressive stress tests are also used to test for possible contagion among banks, and from banks’ exposures to financial institutions abroad. Since the release of the last Financial Stability Report (FSR) in January 2014, the financial sector has shown signs of improvement. Despite credit risk remaining high, the level of non-performing loans(NPLs) has declined since September 2013.

Furthermore, even though the overall loan portfolio of domestic lending institutions contracted slightly, the mortgage market remained an area of growth across the financial system. At the same time, available funding continued to shift from the private to the public sector. In addition, growth in deposits was moderate and resulted in increased liquidity in the financial system, while capital buffers remained well in excess of the requirements and institutions continued to generate profits. Assets in the financial system as at March 2014, were estimated to be in the region of $21 billion or 250 percent of gross domestic product (GDP). Although there was some portfolio switching, the underlying movement in total assets remained flat over the last twelve months. Commercial banks continue to be the dominant group in the financial space, accounting for 60 percent of total assets, 80 percent of total deposits and 72 percent of all lending.